A new tax bill was signed into law on December 22, 2017 that had many significant changes to how people and businesses will be taxed moving forward. In regard to family law, there was one significant change that eliminates a 75-year-old provision regarding alimony. But before we get into discussing this change, let’s start with defining what exactly alimony is.
Alimony is money paid by the supporting spouse to the dependent spouse allowing the dependent spouse to support oneself throughout the separation, as well as after the divorce is finalized. During the separation period, alimony is often referred to as post separation support (PSS). Once a final divorce decree is entered by the Court, post separation support becomes alimony. The same tax implications will apply, regardless of which term is used.
Currently, the supporting spouse can claim a deduction on alimony payments. The alimony payments received by the dependent spouse are viewed as income by the IRS and are therefore taxable. The IRS taxes the payments the same way they would tax salary or wages.
So, what did the new tax legislation change? In any divorce commenced after December 31, 2018, the supporting spouse can no longer claim a deduction from alimony payments made to the dependent spouse. Also, the dependent spouse receiving the alimony payments is no longer required to pay taxes on the alimony payments as if they were earned income.
These changes will certainly have an impact on separation agreement negotiations concerning alimony and post separation support. However, the new tax laws will not affect anyone who divorces or signs a separation agreement before 2019.